Public Provident Fund Account: What Is It and Why Is It Beneficial?
What is a public provident fund account?
Public Provident Fund (PPF) was introduced in India in 1968 with the objective of mobilizing small savings in the form of investment, coupled with a return on it. It can also be called a savings-cum-tax savings investment account that enables one to build a retirement corpus while saving on annual taxes. Anyone looking for a safe investment option to save taxes and earn guaranteed returns should open a PPF account. So if you are keen on a safe corpus, earning a decent tax-free rate of return, enjoying tax benefit - then PPF is for you. The contributions (i.e. investments) made to the PPF account, will earn tax-free interest and the maturity proceeds are exempt from income tax. But while you invest, have a long-term investment horizon; it can help you in retirement planning. Keep in mind, you need to be disciplined to make the most of the PPF investments and also meet your liquidity needs elsewhere.
How to open a public provident fund (PPF) account?
A PPF account can be opened at nationalized bank branches or even at the post office. There is an option to open a PPF account online along with the offline method. You can transfer the PPF account from the post office to the bank account and vice versa. The documents needed to open a PPF account include a valid proof of identity (PAN/Driver’s Licence/Voter ID/Passport), and your recent passport-size photographs.
Considerations while opening a public provident fund (PPF) account
1. Effective Interest
PPF is a debt-oriented asset class, i.e., one’s investment is not exposed to equities and hence returns are not linked to the stock market performance. The interest rate on PPF returns is set by the government every quarter based on the yield (return) of government securities. In 1968-69, PPF offered a 4 percent per annum interest while from 1986-2000 it offered 12 percent.
2. Deposit Limit
While the minimum annual amount required to keep the account active is Rs 500, the maximum amount that can be deposited in a financial year is Rs 1.5 lakh. One can open a PPF account in one’s own name or on behalf of a minor of whom he is the guardian. This is the combined limit of self and minor accounts. If contributions are in excess of Rs 1.5 lakh in a year, the excess deposits will be treated as irregular and will neither carry any interest nor will this excess amount be eligible for tax benefit under Section 80C. This excess amount will be refunded to the subscriber without any interest.
3. PPF in the name of minor
A PPF account on behalf of a minor can be opened by either father or mother. Both parents cannot open a separate account for the same minor. An individual may, therefore, open one PPF account on behalf of each minor of whom he is the guardian.
At times, grandparents are interested in opening PPF for their grandchildren. PPF rules, however, do not allow them to do so when the parents of the minor are alive. They can open the account only if they are appointed as legal guardian after the death of the parents.
4. Number of accounts
An individual can open only one account in his name either in a post office or a bank and he has to declare this in the application form for opening the account. Persons having a PPF account in the bank cannot open another account in the post office and vice-versa.
If two accounts are opened by the subscriber in his name by mistake, the second account will be treated as an irregular account. For this, one has to write to the Ministry of Finance (Department of Economic Affairs) and get its approval.
Conclusion
Therefore, we have seen in this article that there are many advantages to opening a PPF account. Individuals looking for long-term risk-free investment options providing stable yields can easily opt for this scheme that is supported by the government. It is very easy to open a PPF account but keep in mind that a person can have only one PPF account in their name. For best PPF account, make sure you consult with the best financial consulting company in Delhi, agent & consultant for the best public provident fund.
